As the global economy braces for a more fractured and unpredictable landscape over the next four decades, Australia is turning to the deployment and advancement of artificial intelligence (AI) as its primary growth lever.

According to the 2026 Intergenerational Report released by the Australian Treasury on Monday, the "rise and application of AI could help achieve" the long-term labour productivity growth assumption of 1.2%, a figure that aligns closely with the projections outlined in the 2023 report. Speaking at the Australian National University while unveiling the report, Australian Treasurer Jim Chalmers noted that the nation's advantages from the 2010s will transition into new strengths, including renewables and critical minerals, robust institutions and strategic partnerships, as well as AI-enabled services.

The data centre boom has emerged as a rare bright spot in the Australian economy, with Westpac estimating its scale could rival the expansion of the liquefied natural gas (LNG) industry in the early 2010s. In the near term, however, this trend threatens to worsen supply constraints in the economy, which have already fueled higher inflation and forced the Reserve Bank of Australia to raise interest rates.

Surge in data centre investment over the past two years

The report projects that Australia's average annual economic growth rate will slow to 2% by the mid-2060s, down from 3% over the past four decades. It also highlights that conflict and competition are intensifying. While economic openness will continue to drive growth, ease inflationary pressures, and boost productivity, countries and businesses will need to strike a balance between supply chain efficiency and national security.

The report states that future economic performance will hinge on remaining open to capture the benefits of well-functioning markets, while simultaneously guarding against the severe shocks stemming from geopolitical instability. Chalmers indicated that Australia's fertility rate is expected to decline "further and faster" than projected just three years ago. He noted that the population, currently estimated at 28.1 million, is now projected to reach approximately 39 million by the mid-2060s, down from earlier forecasts of over 40 million.

The report further underscores that "pressures on intergenerational equity are intensifying" due to long-term challenges arising from housing, demographic shifts, and other structural economic trends. It estimates that if home ownership rates had remained at 1981 levels, roughly 250,000 more households in the 25-to-34 age bracket would own their homes, based on the most recent data available.